Arena Shares Sink as Big Dates for Diet Pill Makers Near

Vivus could win US approval in the next three months for the first new diet pill in a decade. Meanwhile, Arena faces a panel of government advisers next month.

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Shares of diet pill maker Arena Pharmaceuticals (ARNA) were on a tear in March, rising 73%. An analysis by Forbes showed Arena was the best performer among biotech drug stocks for the month. For Arena and two rival diet pill developers -- Vivus (VVUS) and Orexigen Therapeutics (OREX) -- the shares ebb and flow on hope that the US Food and Drug Administration will finally approve a new weight-loss drug after a more than 10-year gap.

But safety concerns and doubts about approvability continue to dog these stocks, and sometimes, making sense of the volatility is a pointless exercise. Shares of Arena dropped almost 19% in the past week. The stock traded at $2.49 midday Tuesday.

The next big catalyst for Arena's stock will come May 10 when it faces a panel of FDA expert advisers for the second time. The first time, the advisers voted against Arena's drug, lorcaserin, and the FDA rejected the drug on safety concerns.

On the other hand, Vivus benefitted from a positive vote from government advisers in February. (It's also that company's second go-around with the FDA.) The shares doubled and were trading at $21.69 Tuesday. While Vivus shares also are down a little over the past week, the predominant bet here is that Vivus is going to receive approval even though the FDA delayed a decision on its diet drug, Qnexa.

When the agency said recently that it would move a decision date for Qnexa from today to July 17, some analysts interpreted that as a good sign. Vivus said the delay related to the FDA's review of a so-called risk evaluation and mitigation strategy as part of potential approval. Why is that a good sign? Because the concern among some investors is that Vivus may have to perform a cardiovascular risk study before winning approval of its drug.

"The three-month delay may indicate that the FDA is leaning toward an approval since the agency could have issued a (rejection)," Leerink Swann analyst Steve Yoo says in a recent note. If the FDA was determined to make Vivus run a heart-risk study before approving the drug, it likely would have issued that determination by today, the analyst adds.

Orexigen has an agreement with the FDA on its own study of cardiovascular risk related to its diet pill Contrave. The agreement, announced in February, is good news for the company, but it also put Orexigen farther behind Vivus, and Orexigen in the race to market for a new diet pill. Orexigen's stock is up 150% this year, trading at $4.01 Tuesday. While all three stocks have been beat up due to FDA rejections, Vivus has had the most momentum over the past year or so, giving it a market value of more than $1.9 billion (about seven times the size of Orexigen and more than four times the size of Arena).

Since this appears to be a two-company race, for the time being, here are some upcoming key dates for Arena and Vivus:

April 29 - Vivus expects to hear word from the FDA on a separate drug, Avanafil for erectile dysfunction. Investors are much more focused on Qnexa, which is believed to have a bigger market potential.

May 8 - FDA staff usually releases briefing documents prior to an advisory panel meeting, giving a glimpse of the agency's thinking about a drug. In this case, Arena's lorcaserin will be reviewed by the Endocrinologic and Metabolic Drugs Advisory Committee on May 10.

June 27 - The FDA is expected to make a decision by this date on possible approval of Arena's diet pill.

July 17 - The FDA is scheduled to make its decision on Vivus' Qnexa.

Also, in the second quarter, European government advisers are expected to issue an opinion on the benefit of Qnexa.

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